Evaluating the Case for Regulation of Digital Platforms Giuseppe Colangelo*
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Evaluating the Case for Regulation of Digital Platforms Giuseppe Colangelo* INTRODUCTION: THE CRISIS OF ANTITRUST IN THE DIGITAL ECONOMY Antitrust enforcement and competition policy in the digital economy is high on the agenda of authorities and policymakers. The flood of reports and policy papers recently released reflects the ongoing debate over the capability of current antitrust rules and tools to handle the emergence of large technology platforms (BigTechs) and to scrutinize their practices and business models. The distinctive features of digital markets apparently require a rethinking of the antitrust regime. The presence of strong economies of scale, extreme indirect network effects, remarkable economies of scope due the role of data as a critical input, and conglomerate effects, along with consumers’ behavioural biases and single-homing tendencies, represent significant barriers to entry that make digital markets highly concentrated, prone to tipping, and not easily contestable. Therefore, large incumbent players appear not to be under threat and hard to dislodge. Moreover, digital platforms act as gatekeepers (either by controlling the access of third-party firms to their users or controlling the consumption of products and services by their users) and regulators (due to their rule-setting role within their ecosystem), and frequently play a dual role, being simultaneously operators for the marketplace and sellers of their own products and services in competition with rival sellers. In light of this, mounting criticism against current competition policy allege that lax antitrust enforcement, flawed Judicial rules that reflect unsound economic theories or unsupported empirical claims, and the limited effectiveness of the antitrust toolkit have * Jean Monet Professor of EU Innovation Policy; Associate Professor of Law and Economics, University of Basilicata; TTLF Fellow, Stanford University and University of Vienna; giuseppe.colangelo1975 @gmail.com. The GAI Report on the Digital Economy contributed to a significant increase in concentration in digital markets.1 Furthermore, antitrust litigation and enforcement are deemed to be too protracted and expensive, causing ambiguity, draining resources, and privileging incumbents.2 Despite the Department of Justice’s Antitrust Division (DOJ) ongoing reviewing of whether and how certain online platforms have achieved market power and are engaging in anti- competitive practices3 and the Federal Trade Commission’s (FTC) launching of an ex post evaluation of BigTech acquisitions,4 there is strong scepticism and criticism surrounding the efficacy of antitrust investigations. Too little, too late. By this view, the only cure to the antitrust crisis is to implement a wave of regulatory reforms. Despite concerns about the effective implementation of reform proposals aimed at providing greater control of BigTechs’ practices,5 and doubts about 1 AMERICAN ANTITRUST INSTITUTE, THE STATE OF ANTITRUST ENFORCEMENT AND COMPETITION POLICY IN THE U.S. (2020); Joint Response to the House Judiciary Committee, Antitrust Experts for the Washington Center for Equitable Growth, State of Antitrust Law and Implications for Protecting Competition in Digital Markets (April 30, 2020), https://equitablegrowth.org/wp-content/uploads/2020/04/Joint-Response-to-the- House-Judiciary-Committee-on-the-State-of-Antitrust-Law-and-Implications-for-Protecting-Competition- in-Digital-Markets.pdf; U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ANTITRUST, COMMERCIAL, AND ADMINISTRATIVE LAW, INVESTIGATION OF COMPETITION IN DIGITAL MARKETS, MAJORITY STAFF REPORTS AND RECOMMENDATIONS (October 2020)[hereinafter HOUSE OF REPRESENTATIVES REPORT]. See also Carl Shapiro, Protecting Competition in the American Economy: Merger Control, Tech Titans, Labor Markets, 33 J. ECON. PERSP. 69 (2019) (urging to reinvigorate antitrust enforcement in the U.S. in three areas, e.g., merger control, the treatment of exclusionary conduct by dominant firms, and the market power of employers as buyers in labor markets); Spencer Weber Waller, Submission to the U.S. House Judiciary Antitrust Subcommittee Investigation of Digital Platforms (April 28 2020), https://papers.ssrn.com/sol3/papers .cfm?abstract_id=3567376 (arguing that the U.S. has become “a laggard, and not a leader” in the formulation of global competition policy). 2 Rohit Chopra & Lina M. Khan, The Case for “Unfair Methods of Competition” Rulemaking, 87 UNIV. CHI. L. REV. 357, 368 (2020). 3 U.S. DEPARTMENT OF JUSTICE, JUSTICE DEPARTMENT REVIEWING THE PRACTICES OF MARKET-LEADING ONLINE PLATFORMS (2019). 4 U.S. FEDERAL TRADE COMMISSION, FTC TO EXAMINE PAST ACQUISITIONS BY LARGE TECHNOLOGY COMPANIES (2020). 5 Alison Jones & William E. Kovacic, Antitrust’s Implementation Blind Side: Challenges to Major Expansion of U.S. Competition Policy, ANTITRUST BULLETIN (forthcoming 2020). See also U.S. COUNCIL OF ECONOMIC ADVISERS, ECONOMIC REPORT OF THE PRESIDENT 22 (2020). 906 Colangelo – Evaluating the Case for Regulation of Digital Platforms the nostalgia for past adventures,6 and even despite the common understanding reached by G7 competition authorities in June 2019—i.e. challenging issues raised by digital markets are not beyond the reach of antitrust law and many of the features of digital markets can be successfully addressed with existing toolkits since antitrust ensures a flexible framework and a fact-based, cross-sectoral and technology-neutral analysis7— regulation is back on the table for policy discussions. Quite surprisingly, it is also on the minds of members of the mainstream antitrust communities.8 Notably, some proposals envisage a public utilities-style regulation for the digital economy, advocating the creation of a digital authority able to impose measures against companies that have a strategic market status.9 Some proponents go even further by suggesting break-ups and bans on vertical integration altogether in order to address economic and social concerns arising from BigTechs.10 Other reform proposals point to 6 Christine S. Wilson & Keith Klovers, The Growing Nostalgia for Past Regulatory Misadventures and the Risk of Repeating These Mistakes with Big Tech, 8 J. ANTITRUST ENF’T 10 (2020). See also Jean Tirole, Competition and the Industrial Challenge for the Digital Age, (unpublished manuscript) (April 3, 2020) (considering old-style regulation impractical in an era of global firms, rapid technological progress and contestable markets) https://www.tse- fr.eu/sites/default/files/TSE/documents/doc/by/tirole/competition_and_the_industrial_challenge_april_3_ 2020.pdf. 7 G7 COMPETITION AUTHORITIES, COMMON UNDERSTANDING ON COMPETITION AND THE DIGITAL ECONOMY (2019). 8 A. Douglas Melamed, Antitrust Law and its Critics, 83 ANTITRUST L. J. (forthcoming 2020). 9 STIGLER COMMITTEE FOR THE STUDY OF DIGITAL PLATFORMS, MARKET STRUCTURE AND ANTITRUST SUBCOMMITTEE (2019); UK COMPETITION AND MARKETS AUTHORITY, Online Platforms and Digital Advertising, in MARKET STUDY REPORT (2020; UK DIGITAL COMPETITION EXPERT PANEL, Unlocking digital competition, in REPORT OF THE DIGITAL COMPETITION EXPERT PANEL (March 2019). 10 Lina M. Khan, The Separation of Platforms and Commerce, 119 COLUM. L. REV. 973 (2019); Open Markets Institute, Restoring Antimonopoly Through Bright-Line Rules, OPEN MARKETS (April 26, 2019), https://openmarketsinstitute.org/op-eds-and-articles/restoring-antimonopoly-bright-line-rules/; K. Sabeel Rahman, Regulating informational infrastructure: Internet Platforms as the New Public Utilities, 2 GEO. L. TECH. REV. 234 (2018); Matt Stoller, Sarah Miller, & Zephir Teachout, Addressing Facebook and Google’s Harms Through a Regulated Competition Approach (Am. Econ. Liberties Project, Working Paper No. 2, 2020), https://static1.squarespace.com/static/5df44e0792ff6a63789b5c02/t/5e90c1f1f177386f95c33662/15865451395 29/Working+Paper+Series+on+Corporate+Power_2.pdf; JONATHAN TAPLIN, MOVE FAST AND BREAK THINGS: HOW FACEBOOK, GOOGLE, AND AMAZON CORNERED CULTURE AND UNDERMINED DEMOCRACY (2019); U.S. HOUSE OF REPRESENTATIVES REPORT, supra note 1, at 380; Rory Van Loo, In Defense of Breakups: Administering 907 The GAI Report on the Digital Economy the need to integrate the antitrust toolkit with ex ante prohibitions to prevent anti- competitive practices by dominant platforms, since, according to this view, there is a risk that ex post enforcement would be too slow to successfully keep markets competitive and contestable in fast-moving markets characterized by a winner-takes-most dynamic.11 Although the proposed solutions might diverge and reflect a heavy regulatory approach to antitrust law rather than the traditional paradigm of economics-based regulation,12 all the proposals question the role of antitrust in the digital economy and some suggest that online platforms should be treated as common carriers.13 The aim of this chapter is to analyze recently released reports and policy papers to evaluate whether regulatory interventions reflect the distinctive features of digital markets and their leading players or whether the main thrust of these proposals for regulatory interventions is Just to circumvent the burdens imposed by standard antitrust a 'Radical' Remedy, CORNELL L. REV. (forthcoming 2020); TIM WU, THE CURSE OF BIGNESS: ANTITRUST IN THE NEW GILDED AGE (2018). 11 European Commission, Proposal for a Regulation of Digital Services Act Package, Ex Ante Regulatory Instrument for Large Online Platforms With Significant Network Effects Acting as Gatekeepers in the European Union’s Internal